Life After Google

by George Gilder

  Perched in the hilltop town of Trequanda and dating from the thirteenth century, the villa La Casa dei Fiordalisi is an opalescent span of golden brick and glowing limestone arches set among radiant red flowers, rolling green vistas, and amphitheatrical sunsets. It seemed a promising place to summon my muses and ponder the mysteries of the cryptocosm as I prepared to write this book.

  Far from Washington and its National Security Agency and from London with its Government Communications Headquarters, I might even discreetly summon the secretive Satoshi for an interview. Why not? He would be safe. Who would know he was there or recognize him if they knew? Just another Japanese tourist in Tuscany. It gave me a shot.

  I settled in by the azure waters of the palazzo pool with my MacBook Air tuned to the bitcoin beat and with mounting piles of printouts of Satoshi’s Internet posts. Soothed by the soporific susurrus of his new kind of money, I leaned back in my chair and gazed toward the Tuscan sun. I closed my eyes and drifted among dreams of exquisite Asian angels, muses for a tale of bitcoin and Satoshi . . . and then—shazam!—in a cascade of excited neurons, he popped into my mind.

  There before me, more vivid than life, was a dapper, articulate Nipponese nerd with an English accent, a libertarian bent, and an epigrammatic style. He conveyed a certain oblique sagacity that reminded me of John P. Marquand’s Mr. Moto, that abbreviated Nakamoto who punctiliously solved a number of almost equally intriguing mysteries in the 1950s, both in novels and on screen.

  “Satoshi at your service,” the man announced with a crisp bow. I was so taken aback that I could scarcely muster words.

  “Why did you disappear?” I stammered, thinking he might dissolve before I could question him. “Where did you go?”

  “I don’t recall ever making an appearance,” he said, with a sigh of cryptic disdain.

  “Well, your avatar surely did,” I said. “Why did you stop posting?”

  “Don’t you remember the time?” he asked with some asperity. “I won’t ever forget it. It was December 2010. Julian Assange, my virtual colleague on the Cypherpunks list, blazed on the covers of all the news magazines. He was charged with treason. People talked of bitcoin as an important facilitator for WikiLeaks. It would have been nice to get all this attention in any other context. But WikiLeaks had kicked the hornets’ nest, and now the swarm was headed toward us.

  “We had to get away from the swarm. Bitcoin’s success depends on being distributed and peer-to-peer,” concluded Satoshi. Bitcoin relied, so I surmised, on the absence of billionaire embodiments and hierarchical handles. If anyone is in control of bitcoin, its distributed security model fails. Satoshi would become just another dreaded “Trusted Third Party,” subject to subpoena by repressive governments or hacked by determined nerds or pirates.

  Satoshi explained: “Governments are good at cutting off the heads of centrally controlled networks like Napster, but pure peer-to-peer networks like Gnutella [music] and Tor [The Onion Router for encrypted email and video] seem to be holding their own.” Indeed, earlier in the century, the Tor system, originated in the NSA and developed by the entrepreneur Bram Cohen, comprised close to half of all Internet bits. Tor takes a video file, for example, and splits it up, peer to peer, across as many as seven thousand computers on the Net. Encrypting all the addresses and decrypting them one at a time as the file is relayed across the network, Tor ensures that no one knows the source or path of the file. Each file’s set of addresses is an onion that sheds its layers only as needed in passing to its destination. Satoshi’s bitcoin system could be said to reverse Cohen’s approach. Rather than concealing the information in transactions, bitcoin compiles it in blocks, timestamps it, and publishes it across all the nodes of the entire network. It is security not by concealment but by publicity. Both bitcoin and Tor are global data structures collectively maintained by untrusting participants. Without a central point of failure, Tor has been remarkably robust and successful.

  Bitcoin can be, too, I reflected, if the tantalizing titan Satoshi gets out of the way. The Internet as a global copying machine cannot create money or other purely digital assets. Any transactions have to use institutions outside the Net, whether banks, credit card companies, or PayPal. Any digital item generated on the Net alone can be reproduced in unlimited quantities. In bitcoin, Satoshi made possible a digital asset that cannot be copied without lots of work, which he called “proof of work.” The proof of work is provided by miners laboriously checking out all the transactions and compiling them into blocks. Thus Satoshi enabled the creation of money on the Net and used the money to pay “miners” to validate its transactions. Recorded in a public distributed ledger, the transactions are mathematically “hashed” into chains of blocks that form an immutable database published across the Internet. Unchangeable records of transactions constitute a form of money. But governments do not like private money creation. So Satoshi carefully preserved his anonymity.

  As the Cypherpunk poster James Donald put it soon after Satoshi announced bitcoin, “To avoid pressure, the network has to avoid any central point at which pressure can be applied. Recall Nero’s wish that Rome had a single throat that he could cut. If we provide them with such a throat, it will be cut.”

  I asked, “Aren’t the properties of bitcoin—its uncontrollable peer-to-peer and distributed architecture—incompatible with all modern money systems? Moneys are established and maintained to do precisely what can’t be done in bitcoins—adjusting money supplies and exchange rates to changing economic conditions. Aren’t you a threat to the entire monetary world, to central banks and G8 summits and International Monetary Fund mandates, to five-point-one trillion dollars a day of oceanic currency trading, to preening financial strategists in Washington and New York, London and Davos, Tokyo and San Francisco, of tax collectors and financial regulators around the world?”

  “We do not want to lead with ‘anonymous currency’ or ‘currency outside the reach of any government.’ ” Satoshi said. “I am definitely not making such a taunt or assertion. Some people say, ‘Bring it on, WikiLeaks.’ I say, ‘No, don’t bring it on, WikiLeaks!’ The bitcoin project needs to grow gradually, so the software can be strengthened along the way.”

  “But in the initial ‘Genesis Block’ of bitcoin, you did put a headline from the Times of London declaring that the ‘Chancellor was bailing out the banks again,’ ” I said. “That was kind of a poke at the hive.”

  Satoshi only smiled.

  “Anyway, I understand what you are doing,” I said, “but how can you have monetary policy if the money supply is beyond the control of bankers?”

  Satoshi answered, “Indeed, in bitcoin there is nobody to act as a central bank or Federal Reserve to adjust the money supply as the population of users grows.

  “It’s more [like] a precious metal. Instead of supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases.”

  With a gnomic gleam of mischief in his eye, he concluded, “It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value. We would rather depend on this process than on needless provocations.”

  “Why do you use the plural we? Are you a composite character?” I inquired rather boldly.

  “No. I’m fully singular. But bitcoin is an implementation of the work of many. Wei Dai’s b-money proposal on Cypherpunks in 1998, among others. Adam Back’s HashCash supplied the proof-of-work concept, along with Hal Finney’s Reusable Proof-of-Work as a digital coin.” The stress on “proof of work”—the costly and laborious means by which transactions are verified and all efforts to falsify them are punished—suggested that Satoshi would resist efforts to change this keystone of the bitcoin structure.

  “Ah, that all makes sense. I understand now why you disappeared. But why did you post again almost four years later? After all, there had been repeated Satoshi s
uspects vetted by the Net, including Wei Dai and Nick Szabo. Some said you were Jed McCaleb, who created an array of encryption protocols, then set up Mt. Gox, and moved on just in time to Ripple, the international money networking scheme that has its own currency, XRP. Forbes even tracked down Hal Finney, in the throes of Lou Gehrig’s disease, communicating only with his eyebrows.”

  “Yes, I was happy to see Finney get some credit from Forbes. He deserved it. No need to interfere. The others could take care of themselves. But I felt sorry for that poor bloke Dorian, beset by Newsweek’s obtusely reporting that he was me. What a humiliation it must have been for a former CIA spook. I had to do something. I only sent four words: ‘I am not Dorian Nakamoto.’ It seemed to suffice.”

  “Well then,” I said, “let’s get beyond the gossip and into the heart of the matter, the nub of the mystery. None of your disciples, from Marc Andreessen to Nick Szabo—has fully explained it. They prefer to talk of the ‘Byzantine Generals’ problem” or the double-spending conundrum or remembered lessons and lemmas from computer science classes. Even, if I may say so—my time with you being limited—even you yourself. You fail to illuminate the inner sanctums of your system.”

  “The ‘inner sanctums’? Bitcoin is a currency and a payment network, not a religion. What do you mean by ‘sanctums’?”

  “I mean the place or the process—I don’t know which—where your empty bits become valuable coins. Where and how does the transubstantiation occur? Is it in the ‘mine’? Or in the ‘mint’? How does it happen? Alchemy? Magic? Hope and change? Overclock your CPUs and GPUs, plunge them into the ice of liquid nitrogen, and prove your useless work? Then you just may win some chump change of coins that don’t even clink or tinkle?” I have to admit today that the chump change has been piling up.

  Satoshi leaned back and looked dismissive. “If you don’t believe me or don’t get it, I don’t have time to try to convince you. Sorry.” He glanced toward the door and began to rise.

  I gasped. “But you just arrived! Don’t leave yet.”

  I hurried to reassure him that I was not a hostile klutz. “I know the system works. I have studied it closely. I am in awe.” Was I overdoing it? Satoshi looked bored. I rushed on. “But all of us have to respond to our critics. Paul Krugman in the New York Times. . . . ”

  “Don’t bring up that name,” he said. Denouncing bitcoin as both “evil” and “reactionary,” Krugman had drilled in on the mining process. This is where volunteers mobilize computer power in the petaflops (thousands of trillions of floating-point operations per second), sucking up electricity, swilling fossil fuels, and pumping out CO2. And it is all to solve problems of a hashing algorithm called SHA 256 for compressing data from multiple transactions into specific-sized slots, where it is time-stamped and verified cryptographically. These mathematical hashes provide virtual fingerprints for large bodies of data, enabling every block of verified transactions to contain unique traces of all the transactions since Satoshi’s Genesis Block.

  “These people know nothing about bitcoin,” he said, with a curt wave of his hand. “The utility of the exchanges made possible by bitcoin will far exceed the cost of the electricity used, about a dollar a day per miner. Therefore not having bitcoin would be the net waste.”

  Satoshi underestimated the eventual electricity consumption by a few orders of magnitude, but the point about the potential utility of the currency remains. “All right then, me. I don’t understand how miners can create real value retreating to hotels near power stations in Reykjavik in a race to solve computer puzzles. It seems symbolic that the index of degree of difficulty is leading off solutions with increasing numbers of zeroes. No real value comes from using these hopped-up machines centered on application-specific puzzle-solving microchips. I don’t care if they are organically cooled by icebergs. . . . You can’t create value that way any more than you can create value racing to dig holes and fill them up again in the Keynesian model or digging up gold from deep in the ground and then hiding it away again in other holes, in the gold-standard model. None of this can create real worth.”

  He gazed at me quizzically. “Except that in the case of bitcoin it does,” he said calmly. “None of these objections is of any interest to me. I worked out all the details over five years. Much more of the work was designing than coding. Fortunately, so far, all the issues raised have been things I previously considered and planned for. I have responded many times. I am tiring of it.”

  I pushed on: “Isn’t churning away on computer ‘hashing’ algorithms rather like a high-tech version of digging holes and filling them up again?”

  “No,” responded the enigmatic inventor. “Digging holes you make progress. Your hole grows larger shovelful by shovelful. Then you refill it step by step. It’s a linear process, with results measurable by scales, rulers, and levels. This is nothing at all like my system of proof-of-work.”

  “Why not?” I asked, scarcely disguising my confusion. “Your computers advance step by step, cycle by cycle, to solve the puzzle.”

  “No they don’t,” said Satoshi. “You don’t understand at all, do you?”

  “So what else is new?” I asked in exasperation.

  Ignoring my comment, Satoshi explained, “There is no such thing as being 1 percent toward solving a block. You don’t make progress toward solving it.”

  “What do you mean?” I asked, baffled.

  “After working on a block or a puzzle for twenty-four hours your chances of solving it are equal to what they were at the start, or at any moment.”

  “Huh?” I grunted.

  “Yes, you are scanning for solutions to the hash. It’s like flipping coins, heads or tails. You try to flip thirty-six coins and have them all come up heads. Each time you try, your chances are the same.”

  “Great,” I said sardonically. “It’s a Bernoulli lottery. And, with enough incense and mumbo-jumbo, that somehow creates value?”

  “Yes,” said Satoshi, “that, and only that, can create value.”

  “It just seems to waste time,” I said.

  “In creating value, time is of the essence,” he said.

  “Well I think that a system based on flipping coins and wasting time needs to be reformed. Don’t get me wrong. I admire your system and all you have accomplished. But this is a flaw. Couldn’t this proof-of-work by futile endeavor be replaced by the problem of computing complex protein folds for medical advances or searching for extraterrestrial life like SETI or curing cancer through DNA mapping or halting the spread of AIDS? You have said this is just release 0.1.”

  Satoshi looked pained. “All those activities are already deemed valuable, and maybe they are. Though I have some doubts about SETI. But you cannot create a standard of value by importing other examples of valuable things. Measuring, sorting, prioritizing the myriad value claims is the problem we are trying to solve with money. What we want to do is gauge value rather than merely present putatively valuable things.”

  “Well, money has to be related to valuable things in the world. Gold is intrinsically scarce and valuable. It makes beautiful jewelry. It is compact and ductile. It is a superb conductor of electricity—and love. Dollars are backed by the full faith and credit of the U.S. government and by the world’s largest economy. Bitcoin is backed by what? Aimless computer cycles producing additional numbers of zeroes?”

  Satoshi waved his hand and asked me to listen. “I will explain this only once,” he said. “As a thought experiment, imagine there was a base metal as scarce as gold but with the following properties: boring grey in color, not a good conductor of electricity, not particularly strong but not ductile or easily malleable either, not useful for any practical or ornamental purpose. And—this is the key—one special magical property: it can be transported over a communications channel. If it somehow acquired any value at all for whatever reason, then anyone wanting to transfer wealth over a long distance could buy some, transmit it, and have the recipient sell it. Maybe it could get an i
nitial value circularly as you’ve suggested, by people’s foreseeing its usefulness for exchange. I would definitely want some.”

  “I get it,” I said. “That substance would be the most valuable element in the world. It would be bits and atoms at once. It would link value and its measurement. It would spur an information revolution.”

  “You are beginning to understand,” he said. “But there is more . . . ”

  He continued: “The way to measure value—proof-of-work—is through the pure expenditure or sacrifice of time. As my friend Nick Szabo put it, ‘We can arrange our affairs around the measurement of sacrifice rather than of its results . . . ’ ”

  “I wish you good luck,” I said. “Many people are going to be trying to change it and reshape it. They will say they are trying to improve it.”

  “They are the ones who will need luck,” said Satoshi with a dispositive smile. “The nature of bitcoin is such that once version 0.1 was released, the core design was set in stone for the rest of its lifetime.”

  “What do you mean, ‘set in stone’?” I asked. “Really?!”

  “The blockchain of transactions incorporates hashes of all the previous transactions and is set to be incorporated in all future transactions. It is set in cryptographic stone,” he said. “I believe I worked out all the little details over the last year and one half while coding it. In ten years, it will either attain huge volumes of transactions or no volume.”

  “Okay, I am beginning to get it,” I said. “In order to have a standard of value it must stand outside all existing value schemes. It must be valueless in itself.”

  “Now you are getting somewhere,” Satoshi said.

  “The mining process,” I said, “combines the two key facets of time. The time domain, set by the ten-minute average for solving the problem, and the frequency domain, set by the computer cycles devoted to the problem, measured in gigahertz, billions of cycles per second.